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CFOs are still searching for the bottom of this economic crisis, yet it seems to be receding ever further from view. Sixty-seven percent of respondents to this quarter's Duke University/CFO Magazine Global Business Outlook Survey are less optimistic about the economy than they were last quarter, when finance chiefs already seemed as distressed as they could possibly be. Just 35 percent of them now expect the economy to begin recovery this year, with another third forecasting better days in the first half of 2010. A final third say recovery will not begin until the second half of next year or later.

The survey, which was conducted in late February and includes results from 1,268 respondents around the world, finds that in the coming months CFOs plan to cut costs every way they know how. U.S. companies will cut capital spending by 13 percent on average over the next 12 months, advertising and marketing budgets will shrink by 8 percent, and tech spending will be down by more than 5 percent.

Flying Blind

Uncertainty, above all, is weighing on CFOs and financial markets alike. The ability to forecast results ranks as finance chiefs' number-one concern about their own companies. Unsure about the economy, the strength of their own customer bases, and their ability to access capital, many finance executives are putting all investment plans on hold. Paul Miller, CFO at Bright Transportation Services, a commercial truck-leasing company based in Texas, says many of his customers are hesitant to commit to long-term contracts. Some are looking to extend existing leases for shorter terms. As a result, "it makes it hard for us to plan," says Miller, who notes that although Bright's finances are strong, the company may reduce its annual truck-replacement expenditures for its daily rental fleet by 50 to 60 percent if the economy remains soft and the market for financing continues to be volatile.

Many of Miller's fellow CFOs also continue to feel the impact of the credit crisis - 54 percent of companies have been at least somewhat affected. Among companies rated B or lower, that number surges to 77 percent. "There are much, much more stringent requirements on the lending side, and that's before you even talk about pricing, which is up about 250 basis points," says Miller. Finance executives say their cost of borrowing has risen by 213 basis points on average since the beginning of the credit crunch in the summer of 2007.

Richard Schrader, CFO at Parsons Brinckerhoff, a multinational engineering and construction firm, says that while "on paper" the company looks like it should have very good access to credit, the reality is proving quite different. "We have very little debt and very good borrowing capacity under our credit line, but the message we've gotten from the banks is, 'Don't borrow right now,'" he says.

As a result, the company is subjecting any proposed investments to a rigorous review. "We're looking at some decisions and saying, 'Do we do this now, or do we wait and see if things are better in four or five months?'" says Schrader.

Payroll Pressures

Nearly 60 percent of companies have made layoffs in the past year, and more than 50 percent of respondents say they plan a workforce reduction in the next 12 months. The anticipated layoffs - expected to average about 6 percent of a company's workforce - represent some 7.6 million jobs, according to Campbell Harvey, international professor of finance at Duke's Fuqua School of Business. Finance employees will feel slightly less impact than their colleagues in other departments; CFOs predict a 4 percent reduction in accounting and finance staff.

In a further threat to consumer spending, those workers who remain employed may see frozen or decreased paychecks as companies hold the line on wages (if not cut them outright) and reduce employee hours.

Even companies whose businesses are holding up better than most are taking precautionary steps to ensure their future financial footing. "Everyone is trying to preserve cash and take anticipatory action to protect against soft spots," says Schrader.

Michael Morrow, CFO at Blue Cross and Blue Shield of Minnesota, says that while the nonprofit health insurer will likely hit its modest goals this year, it has held off on filling some open positions and is eliminating merit raises this year, a move he says employees seem to have accepted as a prudent financial step. "We are also looking closely at trying to make our processes more efficient, possibly by eliminating some activities that add value but also add a lot of cost and complexity to the organization," he says.

Schrader, too, says that his management team is reevaluating some aspects of the business. "We're having more-frequent internal meetings with senior management and operating heads, discussing whether we should be developing some early-warning metrics and whether we are adequately anticipating potential risks to the business. There are also a lot more checks and balances in terms of decision-making on spending money," he says.

"No one knows when the economy will turn the corner," says Schrader. "We can't get a good read on it." But if, as Schrader and Morrow suggest, management teams are making operational improvements to their businesses, focusing on their most important initiatives, and thoughtfully considering risk-management processes, perhaps those companies that do eventually turn the corner will emerge ready to grow.

Kate O'Sullivan is a senior writer at CFO.

Source for all charts: Duke University/CFO Magazine Global Business Outlook Survey of 1,268 CFOs.The respondent breakdown for the charts is 543 CFOs in the United States, 221 in Europe, 246 in Asia, and 258 in China.

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